Chapter 01

Introduction to accounting

Myo Hein

2021-22
 Table of Contents
01 INTRODUCTION
Book-keeping
Accounting
Statement of Financial Position

02 ASSETS, LIABILITIES AND CAPITAL

Assets
Liabilities
Capital

03 THE ACCOUNTING EQUATION

Assets = Capital + Liabilities
Assets = Owner’s Equity + Liabilities
Inventory, Trade Receivable, Trade Payable

04 THE STATEMENT OF FINANCIAL POSITION

Form of a Statement of Financial Position

Date 2
Introduction

Strictly Private and Confidential 3 MES

Introduction

Strictly Private and Confidential 4 MES

Introduction
Book-keeping
A process of detailed
recording of all the financial
transactions of a business.
Even the smallest business to
make a record of every transaction
which affects the business. If the
records are not maintained, it is
likely that something will be
forgotten or overlooked.
The method is double-entry
book-keeping System.
Strictly Private and Confidential
Accounting
Accounting is using book-
keeping records to
prepare the financial
statements and to assist
in decision-making.
The owner of business
needs to know whether
the business is making a
profit or a loss.
Business – Profit – Expand
Business – Loss - Close
Statement of
Financial Position
A statement of Financial Position
shows the Assets and Liabilities of a
business on a certain date.
The Owner of the business also
needs to know the financial position
at regular intervals, so a statement of
financial position is prepared.
This show what the business owns
“Assets” and what is owing to it
“Liabilities”.
1. Income Statement
2. A Statement of Financial Position
5 MES
Interactive Exercise 1

1. Define the term book-keeping.

2. Define the term accounting.
3. State two reasons why it is necessary to prepare financial statements at regular
intervals.
4. State what is included in the term financial statements.

I n t e r a c t ive
Exercise

corporatefinanceinstitute.com MES
Assets, Liabilities and Capital

Accounting

≠
View Point

Owner Business

Strictly Private and Confidential 7 MES

Assets, Liabilities and Capital

Assets Liabilities Capital (Owner’s Equity)

Assets represent anything owned Liabilities represent anything Capital is the total resources
by or owing to the business as owed by the business. provided by the owner and
the resource of the business. represents what the business
owes the owner.

1. In Cash – Cash
2. In Kind – Car, Land

Strictly Private and Confidential 8 MES

Interactive Exercise 2

1. Define each of the following terms.

a) Assets
b) Liabilities
c) Capital

I n t e r a c t ive
Exercise

corporatefinanceinstitute.com MES
The Accounting Equation

Liabilities

Assets

Capital
(Owner’s Equity)

Strictly Private and Confidential 10 MES

Assets, Liabilities and Capital
Total Assets Total liabilities & capital

Current liabilities
Current assets Due within one year
Used within one year e.g. accounts payable

e.g. cash, inventory, accounts receivable

Non-current liabilities
Due in more than a year

e.g. long-term debt

Non-current assets
Last more than a year

e.g. property, plant and equipment, Shareholders’ capital

technology, patents, trademarks
e.g. common shares and retained earnings

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Assets, Liabilities and Capital

A Statement of Financial Position must always balance To ensure this is the case, all transactions are
recorded in the Statement of Financial
Position in two places.

Assets Liabilities & Equity Double Entry Accounting

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Interactive Exercise 3

1. Assets = ……….....………………
2. Capital = ……….....………………
3. Liabilities = ……….....………………

I n t e r a c t ive
Exercise

corporatefinanceinstitute.com MES
Recording the Transactions
January 1. Leena setup a business to trade under the name of the Dress Shop. She opened a business bank account and paid
in $20,000 as capital.

Assets Liabilities & Shareholders’ Equity

Current assets 20,000 Current liabilities

Bank
Non current liabilities

Shareholders’ equity 20,000

Non current assets Common stock

Total 20,000
Total 20,000

Strictly Private and Confidential 14 MES

Recording the Transactions
January 2. The Business purchased Premises, $15,000 and paid by cheque.

Assets Liabilities & Shareholders’ Equity

Current assets 20,000 Current liabilities

Bank -15,000
5,000 Non current liabilities

Shareholders’ equity 20,000

Non current assets 15,000 Common stock

Total 20,000
Total 20,000

Strictly Private and Confidential 15 MES

Recording the Transactions
January 3. The Business purchased goods, $3,000 on credit.

Assets Liabilities & Shareholders’ Equity

Current assets Current liabilities

Bank 5,000 Trade Payable 3,000
Inventory 3000 Non current liabilities

Shareholders’ equity
Non current assets 15,000 Common stock 20,000

Total 23,000
Total 23,000

Strictly Private and Confidential 16 MES

Recording the Transactions
January 4. The Business sold goods, at the cost price of $1,000, on credit.

Assets Liabilities & Shareholders’ Equity

Current assets Current liabilities

Bank 5,000 Trade Payable 3,000
Inventory 2000 Non current liabilities
Trade Receivable 1000
Shareholders’ equity
Non current assets 15,000 Common stock 20,000

Total 23,000
Total 23,000

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Interactive Exercise 4

1. Fill in the missing figures in the following table.

Assets Capital Liabilities
a. 35,000 ? 12,500
b. ? 44,400 19,300
c. 67,300 55,000 ?

I n t e r a c t ive
Exercise

corporatefinanceinstitute.com MES
The Statement of Financial Position
The accounting equation may be shown in the form of statement of financial position.

Liabilities

Assets

Capital
(Owner’s Equity)

The statement of financial position will be affected every time the business makes changes to the assets, liabilities or capital.

Strictly Private and Confidential 19 MES

Interactive Exercise 5

1. Give two examples of each of the following

a) Asset
b) Liabilities

2. Explain the meaning of each of the following terms.

a) Trade payable
b) Trade receivable
I n t e r a c t ive
Exercise
3. The Totals of a statement of financial position must always agree.
a) True
b) False

corporatefinanceinstitute.com MES
Revision Checklist
Chapter 1

❑ Book-keeping Process

❑ Accounting Equation

❑ Movement of Accounting Transactions

❑ A Statement of Financial Position

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 Thank you

Myo Hein
+09-253-262626
ceo@mesc.pro
www.mesc.pro

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 Quiz Time

You don’t have the Cash, So you Borrowed $50 from your Mom and $50 from your
Dad.

$50 + $50 = $100

You Bought the Shirt $97, and Had $3 Change

You give your Mon $1 and your Dad $1 and Kept the other $1 for yourself.

Now You owe your mom $ 49 and your dad $49

$49 + $49 = $98 + Your $1 = $99

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